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A Consequence of Mr. Keynes

Robert Samuelson criticizes departing White House economist Larry Summers for ignoring the “contradiction between the administration’s ambitious social and regulatory agenda and the business confidence necessary for hiring and investing” (“Judging Obama’s economics,” Jan. 3).

Mr. Samuelson is correct that this contradiction exists, and that Mr. Summers ignores it. But the problem isn’t with Mr. Summers per se as with the Keynesian mindset that economists of his ilk bring to their role as policy advisors. As my GMU colleagues James Buchanan and Richard Wagner warned years ago, an ill-consequence of Keynesianism is that “allocative efficiency” (the achievement of which is severely hampered by Pres. Obama’s social and regulatory agenda) is “relegated to a second level of importance by comparison with the ‘pure efficiency’ that was promised by an increase in the sheer volume of employment itself.”*

It’s not much of an exaggeration to say that the Keynesian obsession with big aggregates – aggregate demand and its effect on the aggregate level of employment – crowds out concern with understanding the less sexy, but in the end far more important, ‘microeconomic’ details of how the economy works.